Why I Left The Mutual Fund Industry Part Deux

Why I Left The Mutual Fund Industry Part Deux

Why I Left The Mutual Fund Industry Part Deux

Here we go again.

Many years ago there was a big giant machine that would meet with you and tell you all about their story and the fairy tales that were written about them.  They were a wonderful group of people who would take your money, invest it for you and then leave it at that. What they didn’t tell you was that they were going to take 2.42% of your total investment every year and put it in their pockets (as well as their associates, fund managers, directors, vice-presidents,  I’m sure you get the picture!).  This fee was based on the total amount of money in your account, whether they made money or lost money in your investment account.  Oh, and if you decided to move your investment money away from them they would charge you a fee of up to 6% of what was in your account.

Fast forward a few years.  Competition has really taken a stranglehold on this company, as well as many others.  They have been lowering their fees, adjusting their fee structure from one that was hidden to one that shows what you are paying…sort of…and they even went so far as to change their name in order to show that they have really changed.

Here is the issue I have run into this week.  Mutual Funds have what is called a ‘Fund Facts’ document that spells out what the fund consists of, how the fund has been doing, risk tolerance, etc. (If you really want to see one or two, give me a call and I can show you some).  It also shows that the MER (management fee) is for the fund.  So, if you were to look at that and see that is says 0.89% you would think it was a pretty good deal, right?  Well, back up the bus.  That is the management fee for the fund itself.  A little deeper digging shows that if you have less than $250 000 with this company they will charge you an extra 1.35% which then increases your annual fee to 2.34% which is inline with their ‘old fee’ of 2.42%.  What a bargain.  They have been advertising lower fees for the last year or two and they are saving you 0.08% per year.

Here is the thing.  This company (and every other mutual fund company) have many different ‘series’ of funds.  The ‘series’ that this company used to have paid the advisor a trailing commission, or servicing commission, which would justify the ongoing service provided by the advisor (on that note, when was the last time you heard from your advisor, be it a newsletter, email or a phone call?) and the main series form this company would pay them  between 0.4% and 1.0%.  Now, instead of it being hidden it is above board, and it is more!  How do they think this is better for the client?

Compare the fee savings that this company is giving you the price of gasoline and it is a saving of just over a penny per litre (based on $1.30 per litre).  If you would go to a different gas station because it was $1.29 per litre, why would you stay with the same investment company? 

Before I sign off, I must admit that I did offer mutual funds to my clients in the past, but as time went on I realized that it was not in the best interest of them.  Ontario (and Canada) doesn’t have what is called a ‘Best Interests Standard’ for the front line advisors in the investment industry, but I have always believed that if you are not acting in the best interest of the client-whether you are an ‘advisor’ or a fund company-you shouldn’t be in the business.

There are many bad advisors around.  Make sure yours has your best interest at heart.  Ask them questions.  If you don’t like the answers, give me a call and we can sit on the back deck for a coffee (or an adult beverage) and talk about what you want to do. 

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